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CSX $400 mln (proceeds) convertibles talked at 0.75-1.25% yield, up 35-40%
By Ronda Fears
Nashville, Tenn., Oct. 24 - A day after railroad stocks rallied, CSX Corp. launched $400 million of 20-year zero-coupon convertible notes with pricing guidance of a 0.75% to 1.25% initial yield to maturity and a 35% to 40% initial conversion premium. Credit Suisse First Boston is lead manager of the deal, which is pricing overnight in the Rule 144A market.
The variable yield to maturity will be reset in years six, 10 and 15, market sources said. The 20-year issue will be non-callable for seven years, with puts in years two, five, seven, 10 and 15. There is a contingent conversion feature with a 120% threshold that declines to 110%.
Deutsche Banc Alex. Brown convertible analysts said the mid-range of the price talk would put the CSX convert pricing about 4% to 6% cheap to fair value, assuming a credit spread of 125 basis points over Libor, a 50 basis point borrow cost and 40% volatility in the stock. The implied volatility would be 31.9% to 28.8%.
On Tuesday, the Richmond, Va.-based railroad company reported third quarter earnings from continuing operations gained 69% to $100 million, or 47c per diluted share, from $59 million, or 28c per diluted share, in third quarter 2000. CSX earned $228 million, or $1.07 per share, from continuing operations for the first nine months of 2001, compared with $132 million, or 62c per share, for the same period in 2000. Net income for the quarter dropped to $100 million, or 47c per share, from $427 million, or $2.02, a year earlier. For the nine months, net income declined to $228 million, or $1.07 per share, from $511 million, or $2.42 per share, in the 2000 period.
CSX common shares closed down $1.62 to $33.57.
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